On February 13, 2008, President Bush signed into law the Economic Stimulus Act. According the the American Horse Council, the bill, intended to provide a jump-start to the lagging U.S. economy, includes two tax incentives that would allow a much bigger write-off for horses used in business and other property purchased and placed in service during 2008.
The first incentive would increase the Section 179 expensing allowance for horses purchased and placed into service in 2008 from $128,000 to $250,000. This expensing allowance applies to farm equipment and most other depreciable property. Once total purchases of horses and other eligible depreciable property during 2008 reach $800,000, the expense allowance goes down one dollar for each dollar spent on eligible property over $800,000.
To illustrate the expensing allowance, assume a horse business purchases $750,000 of depreciable property in 2008, including $650,000 for horses. That business can write off $250,000 on its 2008 tax return and depreciate the balance. If instead, purchases were $900,000, the expense allowance would go down by $100,000. In either case, the amount of the purchases not expensed may also be eligible for bonus depreciation, the second incentive.
Bonus depreciation brings back 50% first-year bonus depreciation for horses and most other depreciable property purchased and placed in service during 2008. It does not apply to property that has a depreciation life of over 20 years. Also, as was the case when bonus depreciation was available in 2003 and 2004, the property must be new, meaning that the original use of the horse or other property must commence with the taxpayer. For a horse to be eligible, it cannot have been used for any purpose before purchase.
As an example, assume that in 2008 a business pays $500,000 for a colt to be used for racing and $50,000 for other depreciable property, bringing total purchases to $550,000. The colt had never been raced or used for any other purpose before the purchase. The business would be able to expense $250,000, deduct another $150,000 of bonus depreciation (50% of the $300,000 remaining balance), and take regular depreciation on the $150,000 balance.